India Isn’t A Good Long-Term Growth Bet, Says Nobel Laureate Andrew Michael Spence

NEW DELHI – In India, it ismore a matter of policy mistakesor inaction rather thananything deeply fundamentalthat has slowed down growth,said Nobel laureate AndrewMichael Spence, who is on atwo-day visit to the country.Spence spoke to ET on the USeconomy and tapering, whyIndia needn’t worry too muchover the current account deficitand China’s bold reforms couldhelp everyone:India has a deficit problem onboth fiscal and current accountside. Is it the root of all problemsthe economy is facing rightnow?India is still a pretty high-growthcountry, so you don’t want toget worried, but it is not a goodlongterm growth bet. HighCAD can be a sign of the problem.But don’t forget, all theseratios have to be calibratedagainst growth. A 3% deficit in anogrowth country like Italy isfairly serious, but 3% deficit fora country growing at 5, 7 or 9%is a very different story.India has got into a somewhatvicious cycle of high fiscaldeficit, high inflation, high interestrates and slower growth.How does the country get out ofthis?It is complicated ,but essentiallyyou have to make tough choices,and have to accept growth hasslowed down. In India, it ismore a matter of policy mistakesor inaction rather thananything deeply fundamentalthat has hurt growth. I thinkmoderate inflation is okay. Inthe Indian context, I will dowhat your very talented RBIgovernor is doing. It is keepinginflation under control, but notcontrol it down to 2%. If it issteadyish, you can live with 5%.In India, the core side of inflationis under control, but thefood inflation has spiralled off.Monetary policy, too, does nothave much effect on controllingfood inflation.To be honest, the volatility infood and commodity prices is amystery to me. It makes me suspicious.Someone here saidonions were a combination ofdemand growth and a very badcrop. Inflation is 280% in onion.There is something very oddabout the volatility in the pricebehaviour.